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Everyone knows customer loyalty is worth its weight in gold. It’s cheaper, easier, and more valuable to get an existing customer to engage with your brand than it is for a cold stranger. Yet everyone also knows that improving customer loyalty isn’t easy.

McKinsey consultants have done a lot of research on customer loyalty, why it’s important, and what leaders can do to improve it. Their research has found that “top-performing loyalty programs can boost revenue from customers who redeem points by 15 to 25 percent annually, by increasing either their purchase frequency or basket  size or both.”

Their research shows that companies with high-performing loyalty programs derive significant business value from those programs. 

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<h1>Why Now</h1>

Analysts argue that multiple micro-economic factors are making this trend increasingly significant, putting downward pressure on businesses, and necessitating value through customer loyalty.

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Loyalty Shake-Up Post Covid-19:

<h1>50%</h1>

of consumers report that they will switch product, brand, or retailer when faced with shortages.

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<h1>8.5%</h1>

increase in the consumer price index from March 2021 to March 2022 in the United States, a 40-year high, 7.5% in the eurozone, and 7% in the United Kingdom.

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<h1>50%</h1>

On average, a customer in the US belongs to 17 loyalty programs indicating a saturated landscape. However, there is low engagement with less than 50% active loyalty memberships.

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Once perceived as a value add, loyalty programs are now the norm, and companies must adjust accordingly. A well-designed loyalty program not only differentiates  a company from its competitors, but it delivers the one thing customers and brands both want: a mutually beneficial relationship. 

Click here to learn how most brands miss the mark when it comes to meeting customer expectations around loyalty programs.

Why loyalty matters

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While most brands have a loyalty program strategy in place, many miss the mark when it comes to meeting customer expectations. The average consumer belongs to 14.8 loyalty programs but are active in less than half of those.  This lack of engagement can be attributed to a few common obstacles. 

Traditionally, companies create static, linear, one-size-fits-all loyalty programs that fail to engage with the customer over time, which in turn fail to provide long-term value. Typical examples include airline miles per mile traveled, gas discounts per gallon purchased, or apparel points earned per dollar spent. The lack of engagement is likely due to a lack of personalization that encourages more adoption. 

Loyalty programs frustrate customers with their lack of transparency and fluctuating values. For instance, economists at Purdue and Chicago Booth discovered that as redemption expirations drew near, gas stations hiked up the price per gallon, believing that the customers’ long-term value had been secured: “The gasoline chains would lower prices at the beginning of the programs to attract participants and then crank up prices once consumers were invested.” 
Practices like these only harm consumers and overall business value.

A better solution would be to supplement those programs with dynamic, personalized offers based on the unique characteristics of your customers. In addition to tiering offers based on a linear metric like dollars spent or miles traveled, businesses could create offers based on activities that the customer enjoys, creating a positive feedback loop that increases engagement and lifetime value. 

Connecting the brand to consumers isn’t the only challenge facing today’s loyalty programs. Sometimes the connection between consumers is even more important. Consumers are drawn to brands that go beyond transactional relationships to foster a sense of community and belonging. Brands should provide a platform for users to share experiences, learn from one another, and network with like-minded individuals.

Consumers frequently complain that loyalty programs are overly complex and require complicated onboarding processes and convoluted point systems. 

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Today’s brands must overcome these obstacles to offer next-level loyalty programs that are personalized, easy to use, and offer transparency and meaningful opportunities to connect. Forward-thinking brands are turning to the latest advancements in technology to help deliver these services to consumers in ways we could have only dreamed of a decade ago. 

Keep reading to learn how blockchain and web3 can vastly improve the loyalty program experience.

Loyalty programs pitfalls: how companies fail to meet customer expectations

Problems with today's loyalty platforms

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The term blockchain entered mainstream conversation around 2009, when cryptocurrency became a household name, starting with Bitcoin. This new innovation quickly became a hotly debated global financial topic. In 2013, Forbes named Bitcoin the year&#39;s best investment. One year later, in 2014, Bloomberg proclaimed Bitcoin to be the worst investment of the year. Whether you’re a crypto fan or not, there’s no denying that blockchain, its underlying technology, has enormous capabilities to upend business as usual. 

Blockchain technology refers to a distributed ledger of transactions maintained by a network of computers. It allows multiple parties to have a secure and consistent view of digital information without the need for a trusted third party. 

New transactions are recorded in groups called blocks that are then linked together in a digital chain using advanced cryptography, hence the name blockchain. This makes the blockchain data very difficult to hack or manipulate. 

Web 3 is frequently referred to by experts as the next iteration of the internet. The goal of Web 3 is to transform the experience of being online by using decentralized technologies like blockchain. By creating a more open, transparent, and user-centric online ecosystem, Web 3 aims to empower individuals by promoting user control, ownership of data, and peer-to-peer interactions that don’t require intermediaries. 

Blockchain and Web3 have the potential to revolutionize the loyalty program landscape as we know it. Deloitte researchers argue that  this technology will completely change the way brands relate to  their customers.

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What is blockchain/Web3?

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Blockchain-based loyalty platforms offer customers a vastly different experience than the loyalty programs they’re used to. Instead of cumbersome onboarding from many traditional programs, Web3 technology allows members to sign in and pay with one-click or one-touch experiences.

Members can easily find rewards and perks from their community or others that interest them in easy-to-use, white-labeled dashboards. Their data remains associated with their unique wallet identities. This creates a cookie-like experience where their assets and preferences travel with them wherever they go, whether in-real-life (IRL) events such as concerts or digital (URL) events such as access to discounts and more. This cookie-like experience will be increasingly important as cookie technology gets phased out.

By engaging with customers in a Web3 or decentralized internet environment, brands can create an entirely new brand experience. No need for cookies or old-fashioned tracking technology. Brands can have their own branded channels or communities where customers could participate, gain status, trade, earn, and receive rewards based on their level of engagement.

Imagine that it could be this easy: As a marketing leader for a national fitness brand, you create a list of offers based on activity metrics from your top customers. These could include traditional, static metrics such as the number of gym visits, but they could also include dynamic metrics such as the intensity of cardio workouts based on beats per minute sustained for a certain amount of time, or even a number of burpees as recorded from a smart watch.

Taking it a step further, you could partner with suppliers in adjacent industries to expand your partnership, reach, and revenue with custom offers. For example, you could collaborate with Nike such that, when a customer buys a new model of shoes and performs a workout that month with those shoes, the customer earns additional perks not available to other program members.

That’s the promise of what blockchain technology can do for next-generation brands. By increasing customer engagement and nurturing thriving communities around the brand, blockchain and the promise of Web 3 will transform the loyalty program landscape as we know it.

From program to platform: the evolution of loyalty

How blockchain and web3 can vastly improve the loyalty program experience

Many internationally recognized brands are jumping headlong into blockchain-based loyalty programs, and understandably so. AdAge publishes a running list of brands and use cases for this technology, including Spotify’s gated playlists, Tribeca Festival’s special access passes, and Nike’s Dot Swoosh platform.

The reason for this adoption is clear: Brands are capitalizing on a huge opportunity. According to analyst firm CB Insights, global blockchain funding surpassed $26.8 billion in 2022. That’s because, according to one marketing researcher, “brands then design tailor-made marketing strategies appropriate for each marketing funnel stage.”

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This is crucial because attribution has always been a great challenge for marketers and customer experience leaders. Blockchain can make this part much easier. Because each transaction is recorded in real time on the distributed ledger that can refer back to the stages of the purchase funnel, marketing teams can correlate with precision what offers led to what transactions.

Further, marketing teams get customer attribution at the individual level rather than looking at aggregate customer data. Companies can also track how individual customers interact with a brand across different channels like websites, retail stores, mobile apps, and so on, even when customers are anonymous at some touch points. By tying together data about a customer’s interactions with each of these channels, companies can get a fuller picture of that customer’s behavior and personalize their experiences even more, further increasing engagement. 

McKinsey analysts discuss eight levers business leaders can pull to improve their customer loyalty:

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To simplify, blockchain technology accomplishes each of these and more. 

‍Find out how blockchain and web3 capabilities can transform the loyalty program experience for customers.

Blockchain-based loyalty programs: what’s in it for marketers

How blockchain capability is changing the industry/markerters’ jobs

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It’s easy to see the benefits of blockchain loyalty programs for those who run them (see our previous article What’s in it for Marketers), but what does the front end of these platforms look like? How do customers use them? Is it really as simple as it sounds? Let’s break down the steps from the customer’s perspective.

<h1>Step 1: Enroll</h1>

Customers sign in using one tap technology provided by any number of single sign-on providers, like Google. Once signed in, they’ll receive  a warm welcome to the brand fan community and get acquainted with their digital wallet. This is where they’ll track points, view journeys, and discover the steps that allow them to earn tokens they can redeem for rewards. All interactions are safe, secure, and transparent— keeping customers in control of their own data and establishing trust in the brand. 

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<h1>Step 2: Entice</h1>

Brands can create incentives and rewards for customers to earn and accumulate via journeys. Each journey guides customers through step-by-step brand interactions and experiences. Each step is referred to as a stop, and each stop on the journey requires the customer to perform an action in order to move to the next stop. 

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<h1>Step 3: Engage</h1>

When a customer reaches the end of a journey by passing through all of the checkpoints, they earn a customized token. These tokens can be instantly redeemed for rewards, offers, real-world or digital experiences, or any number of free perks. They can even be traded, gifted, or sold—all within your community, helping to create customer networks around your brand.

In addition to your own perks, allow trusted partners to offer affiliated perks to members for a fee. These non-competitive brand partnerships transform customer experiences and drive revenue dollars like never before. 

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Blockchain-based loyalty programs in action: a step-by-step breakdown

How do blockchain loyalty programs work, step-by-step, from the user perspective?

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From streamlined customer experiences to intuitive dashboards and interfaces, the benefits of block-chain based loyalty programs aren’t hard to understand from a user perspective. But how exactly can it impact the bottom line? Here are three ways block-chain based loyalty programs benefit ROI.

<h1>#1 - Increase membership base and engagement with hyper-personalized rewards.</h1>

They say 80% of revenue comes from 20% of customers. Why not engage those customers with dynamic, hyper-personalized offers that provide real value to customer loyalty? Here are a few examples we’ve seen clients use blockchain offers to engage customers:
Alumni associations: Offer event tickets, networking opportunities, mentorship programs, and exclusive merchandise or travel packages for the most engaged and highest-tier members. Blockchain tokens can represent different membership tiers and the access or benefits each tier provides. As members engage more with the association, they can earn more tokens to advance to higher membership tiers.

Apparel brands: Offer exclusive, limited-edition items of clothing or accessories as rewards for their highest-spending or most loyal customers. As customers continue to shop with the brand, they can earn more tokens to gain access to additional exclusive items and events.

Fitness brands: Offer custom perks based on activity or location, or even cross-sell partnership opportunities with popular fitness brands like F45, Nike, and more.

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<h1>#2 - Grow sponsorship partners and revenue through network effects.</h1>

Over time, your blockchain-based loyalty rewards program will create what we call an incentive-loop flywheel. This is an ongoing cycle of creating offers to attract new members and generate interest, converting those members by having them sign up or purchase the offer, delivering valuable benefits and an excellent member experience to those who have converted, and then creating new incentives and offers to further engage those members. This flywheel also involves identifying new cross-sell and up-sell opportunities to provide additional value to members while also increasing their lifetime value.

The key to success with this flywheel is to consistently optimize each stage of the process. Offers should be tailored to match the interests and needs of your target audience. The conversion process needs to be seamless and frictionless, as does the member experience in order to retain members and keep them engaged. Incentives and new offers should be highly relevant to members and enhance the benefits they are already receiving.

When done right, this incentive-loop flywheel results in a virtuous cycle where more members and more engagement leads to more opportunities, which then brings in more members. Optimizing the flywheel and keeping it spinning is critical to growth and success.

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<h1>#3 - Create custom brand collaborations.</h1>

Blockchain-based membership tokens can represent access to a network of rewards and benefits across different brands and platforms. These digital tokens could take the form of art, graphics, or other media. They enable brands to market to community members in a more personalized, peer-to-peer way by making the brands part of the community rather than just advertisers. The blockchain would provide a permission-less, decentralized environment for this kind of network.